Things to Read on the Morning of May 19, 2014

Should-Reads:

Sven Jari Stehn and David Mericle:2014 Q4 to Q4 GDP Growth Forecast Now Lowered to 2.4%: "We see a number of reasons, however, for a somewhat less upbeat view of the underlying trend in housing activity.... Declining mortgage rates boosted growth in residential investment.... As this tailwind dissipates going forward, the trend in housing activity might be somewhat lower.... Mortgage credit availability remains tight.... Recent data raise questions about the strength of the recovery in household formation.... Given these headwinds, we are trimming our forecast for residential investment from 13% to 7.5% and from 12.5% to 10% in 2014H2 and 2015H1, respectively. As a result we are shaving our forecast for real GDP growth by 1⁄4 percentage point to 31⁄4% in 2014H2..."

Ed Luce:One of the above: Obama’s bet on gas throws caution to the wind: "As windfalls go, America’s natural gas boom verges on the biblical.... Hydraulic fracturing has opened up a supply of cheap and relatively clean gas for decades to come.... That, at least, is the assumption. But what if it is wrong?... Everyone is piling into the 'dash for gas' on the basis that US gas prices will remain cheap as far as the eye can see. Long before 2030, however, US producers will have been pushed into the more expensive shale formations.... Industry specialists protest that new technology will have opened up non-economic supplies by then. Yet gas euphoria has pushed risk management out of the window. However cushioned the basket might look, it is unwise to put all your eggs in it. Next month President Barack Obama’s administration will issue a new set of emissions rules that are likely to put most existing US coal-fired power plants out of business.... Three risks.... Twenty and 30-year investments are being made on the assumption that US gas prices will remain a third or so of levels elsewhere in the world.... Gas is still a fossil fuel. An unintended consequence of the dash for gas has been the displacement of research into carbon capture technology to mitigate global warming.... Finally, there is geopolitics.... Investments in LNG terminals and cross-border pipelines are bringing forward the day when there will be something resembling a global spot market in natural gas.... The closer that comes, the more vulnerable the US, and other economies, will be to global supply shocks.... Providence--and improved technology--gave the US a huge windfall. The big question is whether the US will use it wisely or fritter it away. Neither the Obama administration nor its opponents inspire much confidence that they will opt for the wise course..."

David Dayen:Two Housing Markets for the Two Americas: "Mel Watt broke his silence this week after four months... repositioned the conservator for Fannie Mae and Freddie Mac as a facilitator of mortgage lending, announcing a series of steps to lower standards on the mortgages they purchase, indirectly increasing access to homeownership for those with less-than-perfect credit scores.... The Federal Housing Administration... rolled out a program that officials claim would expand credit as well.... Dodd-Frank rules mandating larger down payments for certain qualified mortgages will likely be abandoned.... there are basically two housing markets in America today: one for the rich and one for the rest. At the high end, things have rebounded nicely.... By contrast, the housing market for everyone else has flatlined..."

Daniel Malloy:Key Georgia Senate candidates won’t back Mitch McConnell: "At the close of Saturday night’s U.S. Senate Republican debate (which airs Sunday at 11 a.m. on Channel 2 Action News) our Jim Galloway asked the seven hopefuls on stage: Would you support Mitch McConnell as GOP leader, whether in the minority or majority? The Kentuckian was not warmly embraced. Businessman David Perdue: 'My answer is no'. Former Secretary of State Karen Handel: 'Absolutely not. We need new leadership with new people there'. Rep. Jack Kingston: 'I’m going to support whoever will sign off on my drive to change the status quo'. Rep. Paul Broun pointed to his vote against House Speaker John Boehner but added: 'I never pledge what I’m going to do in the future ’til we look at who’s going to be running, so I don’t know'. Rep. Phil Gingrey: 'I pledge to sit down with every member of the Senate, the incumbents or newly elected, who want to be part of our leadership and listen to ‘em and ask ‘em the tough questions before I would commit to supporting them for the leadership positions'. MARTA engineer Derrick Grayson: 'The answer is no'. Attorney Art Gardner broke with the crowd: 'Yes, because the problem with Sen. McConnell isn’t that he’s ineffective. He’s ineffective because he’s in the minority. So I don’t have a problem saying yes.' Notice the breakdown among the top tier: The Congressmen hedge, while Handel and Perdue firmly refuse to back McConnell..."

Maria Konnikova:Most People Can't Multitask, But a Few Are Exceptional: "A thousand people... a multitasking test. Most had fared poorly... in the London lab were the six who had done the best. Four, Strayer and his colleagues found, were... not quite good enough.... Two made every cut—and Cassie in particular was the best multitasker he had ever seen.... In her pre-test, Cassie had made only a single math error (even supertaskers usually make more mistakes); when she started to multitask, even that one error went away.... Strayer believes that there is a tiny but persistent subset of the population—about two per cent—whose performance does not deteriorate, and can even improve, when multiple demands are placed on their attention. The supertaskers are true outliers. According to Strayer, multitasking isn’t part of a normal distribution akin to birth weight, where even the lightest and heaviest babies fall within a relatively tight range around an average size. Instead, it is more like I.Q.: most people cluster in an average range, but there is a long tail where only a tiny fraction—single digits among thousands—will ever find themselves..."

Peter Temin:Economic History and Economic Development: New Economic History in Retrospect and Prospect: "Economic history and economic development... the difference is that economic history focuses on high-wage countries while economic development focuses on low-wage economies.... [Joachim] Voth demonstrated that Western Europe became a high-wage economy in the 14th century, using the European Marriage Pattern stimulated by the effects of the Black Death. This created economic conditions that led eventually to the Industrial Revolution in the 18th century. [Robert] Allen found that the Industrial Revolution resulted from high wages and low power costs. He showed that the technology of industrialization was adapted to these factor prices and is not profitable in low-wage economies. The cross-over to economic development suggests that demography affects destiny now as in the past, and that lessons from economic history can inform current policy decisions..."

Already-Noted Must-Reads:

Austin Frakt:The cost-benefit of universal coverage: "Michael Cannon.... 'The state of the literature on the costs of universal coverage is worse still. I am aware of only one study that has even attempted to measure some costs of universal coverage and compare them to some of the benefits.... So how is it that despite this dearth of evidence, a vocal minority of the U.S. population is utterly and completely convinced that universal coverage is net beneficial?... Why do they hold this prior belief?'.... John Nyman estimates that if we value a year of life at $100,000... and if health insurance leads to a 25% reduction in mortality (which strikes me as high in light of recent work), then people are better off by $2,100 per year with insurance.... Kenneth Arrow... argued that health insurance is welfare improving.... Wilhelmine Miller and colleagues find that the gains in health from covering the uninsured to be valued at $65-$130 billion annually with costs estimated to be $34-$69 billion.... Peter Muennig, Peter Franks, and Marthe Gold calculated that health insurance yielded a quality-adjusted life year (QALY) for a non-elderly American at a cost of $35,000... supplementing Medicare with more generous coverage produced a QALY for $24,000.... McClellan and Skinner... estimate that for individuals in the bottom two-thirds of the income distribution, Medicare provides substantially more value than it costs.... One cannot credibly say there has been no consideration of the benefits and costs of coverage expansion.... There’s yet another point of view to consider. The work of David Cutler shows that medical care is overwhelmingly worth its cost.... Let us keep in mind, however, that even if health insurance of some type is worth its cost, that alone doesn’t imply universal coverage is... the most cost-effective policy we could implement now..."

Over at the Equitablog:Daron Acemoglu, Suresh Naidu, James A. Robinson, and Pascual Restrepo:Democracy and growth: New evidence: "A country that switches from non-democracy to democracy achieves about 20% higher GDP per capita over the subsequent three decades... between 1960 and 2010.... These are large but not implausible effects, and suggest that the global rise in democracy over the past 50 years (of over 30 percentage points) has yielded roughly 6% higher world GDP.... We predict the probability of democratizing based on 4 years of GDP, and then reweight country-years so that we are effectively comparing the path of GDP following a democratization with the path of GDP following an 'almost democratization'.... We develop an instrument for democracy based on regional waves of democratization.... The IV coefficients are much larger than the OLS coefficients compared to our measure, suggesting that we have reduced the measurement error in the democracy variable..."

Comments

Things to Read on the Morning of May 19, 2014

Should-Reads:

Sven Jari Stehn and David Mericle:2014 Q4 to Q4 GDP Growth Forecast Now Lowered to 2.4%: "We see a number of reasons, however, for a somewhat less upbeat view of the underlying trend in housing activity.... Declining mortgage rates boosted growth in residential investment.... As this tailwind dissipates going forward, the trend in housing activity might be somewhat lower.... Mortgage credit availability remains tight.... Recent data raise questions about the strength of the recovery in household formation.... Given these headwinds, we are trimming our forecast for residential investment from 13% to 7.5% and from 12.5% to 10% in 2014H2 and 2015H1, respectively. As a result we are shaving our forecast for real GDP growth by 1⁄4 percentage point to 31⁄4% in 2014H2..."

Ed Luce:One of the above: Obama’s bet on gas throws caution to the wind: "As windfalls go, America’s natural gas boom verges on the biblical.... Hydraulic fracturing has opened up a supply of cheap and relatively clean gas for decades to come.... That, at least, is the assumption. But what if it is wrong?... Everyone is piling into the 'dash for gas' on the basis that US gas prices will remain cheap as far as the eye can see. Long before 2030, however, US producers will have been pushed into the more expensive shale formations.... Industry specialists protest that new technology will have opened up non-economic supplies by then. Yet gas euphoria has pushed risk management out of the window. However cushioned the basket might look, it is unwise to put all your eggs in it. Next month President Barack Obama’s administration will issue a new set of emissions rules that are likely to put most existing US coal-fired power plants out of business.... Three risks.... Twenty and 30-year investments are being made on the assumption that US gas prices will remain a third or so of levels elsewhere in the world.... Gas is still a fossil fuel. An unintended consequence of the dash for gas has been the displacement of research into carbon capture technology to mitigate global warming.... Finally, there is geopolitics.... Investments in LNG terminals and cross-border pipelines are bringing forward the day when there will be something resembling a global spot market in natural gas.... The closer that comes, the more vulnerable the US, and other economies, will be to global supply shocks.... Providence--and improved technology--gave the US a huge windfall. The big question is whether the US will use it wisely or fritter it away. Neither the Obama administration nor its opponents inspire much confidence that they will opt for the wise course..."